Peak customs duty by 5% to 30%, but protection for steel, IT hardware producers

SEZs, civil avitation, satellite broadcasters favoured; barriers lowered for non-ferrous metals

In his last budget, Union Finance Minister Yashwant Sinha had announced that he would move progressively to reduce the peak rate of customs duty to 20% within three years. He had also said that the modalities for this would be worked out in time for the next budget. Accordingly, he had set up an Inter-Ministerial Working Group to recommend the modalities.

The group has suggested a road map for this starting with this year's budget. After careful consideration of the Group's report, the finance minister has decided that, by the year 2004-05, there would be only two basic rates of customs duties, namely, 10% covering generally raw materials, intermediates and components and 20% covering generally final products. The existing rates would be adjusted and subsumed in these two basic rates with some exceptions on account of WTO bindings or higher tariffs for agricultural products.

In accordance with the road map, Sinha proposed to reduce the peak rate from 35% to 30% this year while presenting the Union Budget 2002-03 in parliament today. He also proposed to make some changes to take care of some current problems.

For instance, the steel industry has been affected by slowdown in demand and has suffered large losses. In order to reduce its cost of production, the finance minsiter has proposed to lower customs duty on a number of refractory raw materials by 10%. These include natural graphite powder, silicon metal, sintered alumina, fused zirconia and boron carbide. He has also proposed to reduce the duty on graphite electrodes of above 24 inches diameter from 25% to 15%.

Ships imported for breaking are charged to customs duty at 5% along with CVD and special additional duty. The finance minister has proposed to revise this by increasing the basic duty on ships for breaking from 5% to 15% and exempting them from CVD and special additional duty. This is to reduce the disparity between rolled products produced by the steel plants and cheaper products produced from ship breaking.

The steel industry is troubled by imports of seconds and defectives at cheaper prices. In order to address their concern, the budget has proposed to increase the basic customs duty on seconds and defectives of steel to the bound rate of 40%.

Non-ferrous metals are used for large number of applications by different segments of industry. The budget has proposed to reduce the customs duty on copper, zinc and lead from 35% to 25% and on aluminium and tin from 25% to 15%.

The Exim policy for the year 2000-2001 had announced a scheme of setting up Special Economic Zones (SEZs) that are intended to provide comprehensive facilities at one place for export production. SEZs would be entitled to procure duty free equipment, raw materials, components, etc., whether imported or purchased locally. The benefit of such exemption shall be applicable to both the developers of SEZs as well as the units located therein.

In order to encourage development of world class infrastructure facilities, Sinha has proposed to reduce the customs duty on specified equipment for ports and airports to 10%.

In view of the difficulties being faced by the civil aviation sector, I propose to exempt duty on aeroplanes, helicopters, gliders, simulators of aeroplanes and their parts and raw materials.

India is signatory to the Information Technology Agreement. In 1998, the finance minister had announced that zero duty regime on IT products would be advanced and implemented by 2003. However, the local manufacturers had urged that it may be made effective only from the year 2005. This would give them an opportunity to gear up to meet the challenge of international competition. Singh said he has decided to accept their demand. As a further measure of assistance to indigenous industry, he has proposed to reduce the customs duty on a number of hardware inputs to 5% and on certain capital goods to 15%. The duty on certain IT items would be reduced to 10% or 5% as per the WTO binding.

Expressing concern over the import of cellular phones through unauthorised channels, Sinhas proposed to exempt cellular phones and pagers from CVD. The basic customs duty is, however, being increased from 5% to 10%.

Reminding members of parliament that he had repeatedly assured them that customs tariffs would be pegged at appropriate levels to protect the interest of the farmers, Sinha said in his last budget he had increased the customs duty on tea, coffee, copra, coconut and desiccated coconut to 70%. This year, the budget has proposed an increase the customs duty on tea and coffee to 100% and on natural rubber, poppy seeds, pepper, cloves and cardamom to 70%. The budget has also proposed an increase in duty on pulses from 5% to 10%.

However, customs duty on agricultural machinery and implements has been reduced from 25% to 15% to encourage farmers to acquire new and efficient technology.

A number of drugs are exempt from customs duty, and the Union Budget 2002-03 has proposed to include eight more drugs used for treatment of cancer and some other critical diseases in the list of fully exempted drugs. Vaccine for immunisation against Japanese Encephalitis shall also be exempt from customs duty. Certain drugs that are presently exempted from customs duty are now made indigenously. In order to provide reasonable incentive to the domestic manufacturers of these drugs, the budget has proposed to impose a basic customs duty of 5% on these drugs.

Noting that India has a large number of diabetic patients who have to undergo frequent blood sugar tests. In order to provide some relief to them, the budget has proposed to reduce the customs duty on Glucometers and test strips from 25% to 10%.

As a measure of rationalisation and removal of anomaly, the finance minister also proposed the reduction in customs duty on non-PDS kerosene from 35% to 20% and increase the customs duty on kerosene sold under the PDS scheme from 5% to 10%.

In order to promote interest in science, the budget has proposed to reduce the customs duty on planetarium equipments, parts and accessories to 15% and also exempt them from CVD and special additional duty of customs.

India has the technical capability to become an uplinking hub for television channels for the SAARC countries. In order to promote state-of-the-art uplinking facilities at competitive costs, Sinha has proposed to reduce customs duty on certain earth station equipment and studio equipment from 35% to 25%.

He also proposed reduction in the customs duty on cement and clinkers from 25% to 20% to help in keeping the domestic prices under control.

The customs duty on imported liquors is bound at 182% for the current year under the WTO. Accordingly, the budget has proposed to reduce the customs duty on these items from 210% to 182%, and rationalised the rates of CVD applicable to liquors and wines to 75% for value up to US $ 25 per case and 50% for others.

Passengers returning from abroad on transfer of residence are allowed certain items of personal use on payment of customs duty at a flat rate of 35%. The finance minister has proposed to reduce this rate to 30% and also add a few more items like lap top computers, portable photocopy machines, digital video disc players, video cassette disc players in the eligible list of items. The overall limit is also being raised from Rs 1.5 lakh to Rs 5 lakh.

Sinha also proposed to impose nominal customs duty of 5% on some of the items that are exempt at present, and impose special additional duty on certain other items that are currently subjected to 5% customs duty.

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